The UCL Practitioner

"UCL Injunctions to Remedy the Past Effects of Wrongful Conduct: Before and After Proposition 64"

The September 2007 issue of Forum, the magazine of Consumer Attorneys of California, has my latest article, "UCL Injunctions to Remedy the Past Effects of Wrongful Conduct: Before and After Proposition 64." It is the second installment of my column, "The UCL/Class Action Zone." Again, if you are a plaintiffs' attorney, government lawyer, judge, research attorney, etc., email me at uclpractitioner@gmail.com and I will send you a copy of the article.

New UCL "injury in fact"/injunctive relief decision: Daro v. Superior Court

In Daro v. Superior Court, ___ Cal.App.4th ___ (Jun. 6, 2007), the Court of Appeal (First Appellate District, Division Three) addressed the UCL's injunctive relief remedy post-Prop. 64.

Preliminary thoughts on Fireside Bank

Fireside Bank v. Superior Court (Gonzalez), ___ Cal.4th ___ (Apr. 16, 2007) is a densely-packed decision. Here are some thoughts on certain aspects of it.

My initial impression was that this case was a win for the plaintiffs. And for the named plaintiffs in this specific case, it is. Their class certification order has been affirmed, and they will get to re-file their summary adjudication motion motion for judgment on the pleadings after notice has been given and opt-out period has expired. Summary adjudication The motion was granted before, and will likely be granted again. They are sitting pretty.

Was this case also a win for class action plaintiffs generally? That is less certain. The opinion does contain some plaintiff-favorable class certification language and, because it is a UCL case, some interesting language there as well. I will start out, in this post, by talking about the class certification and UCL aspects of the opinion, leaving the "one-way intervention" aspects for a later post.

Fireside Bank challenged only the "typicality" and "superiority" elements of class certification. As to typicality, Fireside Bank argued first of all that the named plaintiff "failed to present evidence establishing she has standing and has suffered injury typical of the class." Slip op. at 24.

The Supreme Court disagreed. What's interesting for UCL purposes is the way the Court analyzed the standing question. It addressed the declaratory and injunctive relief remedies separately from the restitution remedies:

Gonzalez has standing. She, like other members of the putative class, was subjected to the same alleged wrong: deprivation of a fair opportunity to redeem the financed vehicle, followed by an unlawful demand for payment. The record demonstrates Fireside Bank repossessed Gonzalez’s vehicle and pursued a deficiency judgment against her. She thus has standing to seek a declaration that Fireside Bank is unlawfully asserting a debt against her, as well as an injunction against all further collection efforts. The record further shows Gonzalez (or someone on her behalf) made a postrepossession payment against the alleged deficiency; upon proof she made that payment, Gonzalez also has standing to seek restitution.

Id. (footnote omitted). This is interesting because the Court is saying that the named class representative would have standing to seek injunctive relief under the UCL even if she could not recover restitution—in other words, even if she had not lost money or property as a result of the defendant's UCL violation. All she would have to show was that she was "depriv[ed] of a fair opportunity to redeem the financed vehicle, followed by an unlawful demand for payment" (not an actual payment). This may very well answer a previously-unanswered question in the brave new post-Prop. 64 world: In a UCL action for injunctive relief only, is "lost money or property" required for standing purposes? Under Fireside Bank, the answer is no. It is enough to show that the defendant's UCL violations threaten harm.

The Supreme Court made this even more clear in the footnote accompanying the language quoted above:

We leave it for the trial court to determine whether, on remand, it may be appropriate or necessary to designate subclasses consisting of those subjected to demands who made payments and have restitution claims, and those who did not and thus have only injunctive and declaratory relief claims. Contrary to Fireside Bank’s assertion, the fact the record does not (as yet) disclose in which general group Gonzalez falls does not render the trial court’s conclusion that her claims are typical an abuse of discretion.

Id. n.8. This language obviously very favorable as to the "typicality" prong. But it also could hardly be clearer that an out-of-pocket payment of money is not a prerequisite to a UCL injunctive or declaratory relief action, even after Prop. 64.

Fireside Bank's second attack on typicality was the argument that the class representative was subject to unique defenses not typical of the class. Slip op. at 25-26. Again, the Supreme Court disagreed: "Contrary to Fireside Bank’s assertion ... , a defendant’s raising of unique defenses against a proposed class Fireside Bank's alleged "unclean hands" defense "may be resolved without significant distraction from the common class issues at the heart of this case." Id. at 26.

Finally, the Court addressed Fireside Bank's "superiority" challenge. That challenge was based on pre-Prop. 64 authorities, most notably Frieman v. San Rafael Rock Quarry, Inc., 116 Cal.App.4th 29 (2004) and Alch v. Superior Court, 122 Cal.App.4th 339 (2004), holding that a certified UCL class action would not be "superior" to the more streamlined representative procedure afforded by the UCL. According to Fireside Bank, a non-class UCL representative action would "provide a simpler alternative" to class certification. Slip op. at 28. (See this prior post for more on that argument.) The Supreme Court confirmed that after Prop. 64, which eliminated the non-class, representative procedure of yore, this superiority argument fails. Id.

Those are my preliminary thoughts on some of the class certification and UCL aspects of this case. Thanks to the readers who emailed me to share your insights earlier in the week. More comments, anyone?

New UCL/Prop. 64 decision: R&B Auto Center, Inc. v. Farmers Group, Inc.

On Friday, in R&B Auto Center, Inc. v. Farmers Group, Inc., ___ Cal.App.4th ___ (Jun. 9, 2006), the Court of Appeal (Fourth Appellate District, Division Three) reinstated a UCL claim for injunctive relief, holding that the trial court had improperly employed the motion in limine procedure to dismiss that cause of action. The opinion has several interesting components:

First, the Court held that the plaintiff's UCL claim was separate and distinct from its insurance bad faith/breach of contract claim:

After the trial court ruled on the motions in limine and held that there was no coverage as a matter of law, it also dismissed the three causes of action suggested by [defendant] Truck Insurance — those for breach of contract, bad faith and unfair competition. We cannot see why a ruling that the insurance contract provided no coverage for the Peralta litigation claim should translate into a ruling that [plaintiff] R & B cannot state a cause of action seeking to enjoin unfair business practices. Whether the insurance contract provided for lemon law coverage for used car sales was a question of law that the court readily answered by reviewing that contract. But the fact that the insurance contract limited lemon law coverage to new car sales hardly proves that Truck Insurance does not engage in unfair business practices in the sale of its new car lemon law coverage to used car dealerships. The court erred in disposing of the unfair business practices cause of action just because it held that the insurance contract did not provide coverage for the Peralta litigation.

(Slip op. at 33-34.)

Second, the Court reaffirmed its holding that Prop. 64 applies retroactively to pending cases, in part because the plaintiff conceded the point:

We invited the parties to file supplemental briefs on the retroactivity of Proposition 64 and the effect of any retroactive application on the case before us. The parties all agreed that the proposition is retroactive, citing this court’s opinion in Benson v. Kwikset Corp. (2005) 126 Cal.App.4th 887, review granted April 27, 2005, S132443. The Supreme Court granted review of Benson, and several other cases addressing the retroactivity of Proposition 64, after the filing of the supplemental letter briefs in the matter before us. Pending a Supreme Court decision on the question of retroactivity, the trial court is directed to apply the Proposition 64 statutory amendments to this case.

(Slip op. at 38-39.)

Third, the Court interpreted the "suffered injury in fact and lost money or property" language of Prop. 64:

Truck Insurance says that R & B lacks standing, under Business and Professions Code section 17204, to maintain the unfair competition cause of action because it has not alleged that it has “lost money or property as a result of unfair . . . competition.” With this assertion, we certainly disagree. R & B alleges that it paid premiums for illusory coverage and it had to make payment on a lemon law claim that it would not have had to pay had the Truck Insurance policy said what it was represented to say. This is an allegation of loss caused by the purported misrepresentations concerning the scope of coverage. The standing requirement is met.

(Slip op. at 39-40 (emphasis added).)

Fourth, the Court addressed (without deciding) whether a UCL claim seeking injunctive relief only must satisfy the class certification requirements of Code of Civil Procedure section 382:

Next, Truck emphasizes that R & B cannot seek injunctive relief on behalf of the general public unless it meets the requirements of Code of Civil Procedure section 382, with reference to class actions. .... Truck Insurance states that R & B may only seek class action injunctive relief if it can demonstrate compliance with these requirements. However, Truck Insurance does not assert that R & B cannot do so.

R & B contends that it can meet the class certification requirements and points us to its offer of proof with respect to the anticipated testimony of Fena, Rusich and Sweet. R & B requests that this court remand the matter so that it will have an opportunity to show that it can satisfy the requirements of Code of Civil Procedure section 382. It is only fair to grant this request, since at the time R & B filed its third amended complaint it was not required to comply with Code of Civil Procedure section 382.

(Slip op. at 40.)

Evidently, the plaintiff chose not to raise the argument that an injunctive-relief-only UCL claim should not have to satisfy section 382, and to argue instead that it can meet section 382's requirements (which is probably the better strategy in many situations). This case could be an example of the "be careful what you wish for" aspect of Prop. 64. On remand, the plaintiff will seek formal class certification of the injunctive relief claim, and based on the opinion alone, I see no reason why the plaintiff should not also amend to seek restitution (at least for itself, if not on a classwide basis). Overall, the amended UCL claim could enhance, not lessen, the defendant's potential exposure.

Review denied in two cases: Discover Bank and Colgan

Last week, the Supreme Court denied petitions for review in two cases:

1. The Discover Bank remand case, in which the Court of Appeal avoided the question of whether the no-class-action arbitration provision was unconscionable under California law by holding that Delaware law applied. Discover Bank v. Superior Court (Boehr), 134 Cal.App.4th 886 (2005) (Supreme Court docket). The Court also denied the depublication request. My original post on this case is here.

2. The UCL restitution decision, Colgan v. Leatherman Tool Group, Inc., ___ Cal.App.4th ___ (2006) (Supreme Court docket). My original posts on Colgan are here and here.

New UCL "restitution" decision: Colgan v. Leatherman Tool Group, Inc.

On Tuesday, January 10, 2006, the Court of Appeal issued a new and significant decision on UCL "restitution." Colgan v. Leatherman Tool Group, Inc., ___ Cal.App.4th ___ (Jan. 10, 2006). The decision provides a roadmap for plaintiffs on how to prove restitution in a UCL case.

The defendant manufactured products and sold them to consumers through retail intermediaries. The defendant represented that its products were "Made in U.S.A." when, in fact, "a significant portion of the various parts of the products were manufacturered abroad." Slip op. at 16. The trial court granted summary adjudication on liability in the plaintiff's favor. Then, following a court trial on remedies, it entered judgment for $13 million as "restitution" under the UCL (as well as the CLRA and the False Advertising Act). Slip op. at 7. The trial court also ordered broad-ranging injunctive relief, including a mandatory injunction requiring the defendant to issue a "corrective announcement" about its products, "to publish for twelve weeks in nine national magazines and forty-seven California newspapers notices of its deceptive labeling and advertising practices," and to pay the cost for retailers to return any offending products still in their inventories. Slip op. at 2-3, 9, 40.

The Court of Appeal, after a lengthy discussion, affirmed the order granting summary adjudication in plaintiff's favor on liability. Slip op. at 10-29. Then, it turned to the remedies.

Restitution, it observed, represents "the value of the property at the time of its improper ... disposition." Slip op. at 37 (quoting Rest., Restitution, §151). It determined that "the amount of restitution necessary to restore purchasers to the status quo ante ... would involve the amount attributable to the misleading 'Made in U.S.A.' representations." Id. at 39. Unfortunately, the plaintiff had presented "no evidence" on that point (partly because he had not cross-appealed from the trial court's adverse evidentiary rulings), so the $13 million award had to be reversed. Id. at 38-39. But the Court then went on to provide examples of the kind of evidence that would constitute sufficient proof of the amount of restitution. As one example, evidence could be offered of the property's "exchange value ..., or the amount for which it could be exchanged if there were an open market with a wide opportunity for buyers." Id. at 37 (quoting Rest., Restitution, §151). Other relevant evidence would include retail price, market value, and potential expert testimony on "the dollar value of the consumer impact or the advantage realized by" the defendant as a result of its UCL violations. Id. at 38.

Plaintiffs should take careful note of the evidentiary roadmap the Court of Appeal provides in this case to a UCL restitution award. This is the only detailed decision that I'm aware of that addresses how to measure UCL restitution in an action involving sale of goods. It confirms my own ideas of what restitution should look like in a UCL case like this. It is also a useful decision on UCL injunctive relief, since the Court of Appeal affirmed every aspect of the trial court's broad mandatory injunction except the part that would have required the defendant to "notify class members of the procedures for obtaining restitution"—a remedy the Court determined had not been proven. (Slip op. at 2-3, 9, 40.)

Recent federal order on the UCL post-Prop. 64: Aureflam v. Pho Hoa Phat

On September 16, 2005, an interesting order was issued in Aureflam Corp. v. Pho Hoa Phat I, Inc., case no. 5:05-cv-00746-RS (N.D. Cal. Sept. 16, 2005). It addresses a number of questions of first impression relating to the interpretation of the UCL as amended by Prop. 64.

The case is a dispute between two owners of Vietnamese restaurant chains. The plaintiff's original suit alleged trademark infringement and unfair business practices under the UCL. The defendant counter-claimed, seeking cancellation of the trademark registration, damages for fraud on the patent office, and injunctive relief under the UCL. The district court (Magistrate Judge Seeborg) granted the plaintiff's motion to dismiss the UCL counterclaim, holding that the defendant had neither alleged "actual injury" nor satisfied the requirements of Code of Civil Procedure section 382. (The case was filed in 2005, after Prop. 64's efffective date, so retroactivity was not an issue.)

The only "actual damages" the defendant claimed were "the attorneys' fees incurred in responding to the principal claim filed by [the plaintiff]." Slip op. at 5. That was held to be insufficient:

The Court has not located, nor did [the defendant] cite, any authority which supports the proposition that attorneys' fees incurred in this action may constitute an actual injury for purposes of a Section 17200 counterclaim. .... Although it is perhaps conceivable that a definition of "actual damages" may emanate from the [California] Supreme Court ... that would include attorneys' fees, there is no current authority which provides that such fees constitute an actual injury for the purpose of Section 17200.

Id. That is an understatement, given that there is essentially no authority at all about what "injury in fact" means. But what's odd about it is the implicit assumption that a UCL claimant seeking injunctive relief only would have to establish an actual injury. That assumption makes little sense, even given the recent amendments to the UCL. One of the main functions of injunctive relief is to stop a threatened injury before it occurs, not after someone has been harmed. Moreover, as the Supreme Court recognized in California v. Altus Finance, S.A., ___ Cal.4th ___ (Aug. 17, 2005), a UCL claim for injunctive relief can be crafted so as to rectify individual wrongs, rather than widespread public ones.

Another interesting thing about this order is its assumption that California rules of class action procedure would apply to a UCL claim filed in federal court:

Scope of injunctive relief under the post-Prop. 64 UCL?

Recently, the Court of Appeal issued an opinion that touches on that question in a very tangential way. Thompson v. 10,000 RV Sales, Inc., ___ Cal.App.4th ___ (Jun. 28, 2005) is a relatively technical decision involving "negative equity" in a retail installment contract. "Negative equity" (a subject dear to my heart after my days at Severson) exists when the trade-in vehicle is worth less than the amount still owed on it. The presence of negative equity complicates the financing arrangement for the new vehicle, and TILA and Regulation Z extensively regulate the handling of negative-equity trade-ins. In any event, the Fourth Appellate District, Division One, agreed with the trial court that the defendant had handled the negative-equity trade-in improperly, in violation of a variety of statutes including all three prongs of the UCL and the Consumers Legal Remedies Act ("CLRA") (Civ. Code §§1750 et seq.). It affirmed the issuance of a permanent injunction requiring the defendant to "stop including trade-in over-allowances in the cash price of the vehicles it sells." Slip op. at 11.

In the last section of the opinion, the Court had this to say about the UCL after Prop. 64:

In its amicus curiae brief, California Motor Car Dealers Association suggests the injunction is improper under the UCL following the recent passage of Proposition 64 because Thompson did not comply with class action procedures. However, we need not decide whether Proposition 64 applies here because the court's injunction was proper under the CLRA.

Id. at 37. What's odd about this is the opinion doesn't indicate anywhere that the CLRA claim had been certified for class treatment. So the Court of Appeal seems to be recognizing that the CLRA does not require formal class certification as a prerequisite to broad injunctive relief. And if the CLRA does not, why should Code of Civil Procedure section 382, under which UCL claims would be certified? The short answer is, it doesn't. This case also illustrates the power of the CLRA as an alternative to the post-Prop. 64 UCL.

Finally, it's interesting that the trial court ordered "restitution" in favor of the other customers whose negative-equity trade-ins had been improperly handled, presumably under the UCL and presumably without class certification. Id. at 12, fn.11. That part of the order was, apparently, not appealed.